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MARKET ATTRACTIVENESS OF AUTO

COMPONENT BUSINESS IN INDIA

Summary presentation for:

BIRD, The Business & Industrial Research Division of IMRB International, India

2nd – 3rd July, 2009


Flow of the Presentation

) Scope of the study

) Research Approach and Sampling Plan

) Study Findings
 Environment Analysis

 Auto Component Market Segments in India

 Market Size and Growth Rate

 Import basket – Total and from ASEAN countries

 Distribution channel and margins

 Import duty and Government Initiatives

) Conclusions and Recommendations


 Attractiveness matrix and Market Entry Strategy

) Annexure

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Scope of the Study

) To map the industry environment of Indian Auto Component


Industry

) To understand the market dynamics1 of Auto Component


Industry in India

) To gauge the attractiveness of Indian Auto Component

Market for Thai investors

1 Market Dynamics involved:-


• Identification of major hubs,
• Classification of auto component industry,
• Analysis of component markets,
• Government incentives and FDI inflows,
• Growth drivers and challenges etc

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Research Approach (Common slide for all modules)

) The two pronged approach following is explained as under:

Secondary/
Database Qualitative
Section Qualitative
Section Stakeholders
Approach

- Industry Associations e.g.


Analysis with Framework
Unstructured (ACMA, SIAM)
developed by BIRD@IMRB
to assess business Business
- Auto Component Manufacturers
attractiveness Interviews
(UBIs) - Automobile Manufacturers
- OEM aftermarket channel
Attractive Business
Segments for Thai
Investors

* 9 FGDs were conducted across 7 cities for this module 4


Study Findings:
Environment Analysis of Indian Auto Component Market

Entry Barriers Moderate


- OEMs having strategic long term vendor
relationships esp. for high value items
- However, OEMs open to supply meeting
their quality standards at better cost
- 100% FDI allowed for new player

Moderate
Industry Competitors High
High Consumer Power
- 450 – 500 mid to large players with
- Auto OEMs have average 2 or
Supplier Power around 6 to 7 thousand units
more suppliers
- Raw material cost are 50 – 60% of - Unorganized segment : around 10,000
- Replacement market
total production cost units
consumers have options for
- Tier structure supporting vendor - In certain segments, less
branded and cheaper spurious
relationship competition due to lack of technology
parts
and limited players

Low
Threat of Substitutes
- Organized component players working
closely with R&D teams of OEMs
- Unorganized units have greater threats
as the replacement market consumers now
shifting to genuine components

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Auto Component Market in India comprise of
OEM, replacement and export demand

) As high as 70% of the


30%
genuine auto component
demand in India comes
from OEMs (Domestic and
70%
Exports)
OEM Demand (Including Domestic & Exports)
Replacement Demand

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Chennai (South), Delhi NCR (North) and Pune (West) are
major automobile and automotive component hubs in India

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Two wheelers contribute to 85% of the total
automobile volumes in India
Category 2002-03 2003-04 2004-05 2005-06 2006-07
Passenger Car 609 843 1018 1113 1323
Utility Vehicle 114 146 192 197 222
Commercial Vehicle 204 275 354 391 520
Two-Wheeler 5076 5623 6530 7609 9442
Three-Wheeler 277 356 374 434 556
Grand Total 6280 7244 8468 9744 11065
Growth Rate 18.13% 15.34% 16.90% 15.06% 13.55%
All Number in '000 units while Growth Rate is in percentage
Source: Ministry of Heavy Industries, Government of India

) Passenger cars contribute 11% of the total volumes (1.32


Million)
) Over the past few year, automobile market is growing an
average rate of 15 – 16%

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Indian Auto Component Market is growing at
CAGR of 27% since 2002 - 03

Auto Component Production


20,000 18,000
18,000
15,000
16,000
(In USD Million)

14,000 12,000
Production CAGR: 27%
12,000
10,000 8,700
6,730 7,200
8,000 5,430 5,400
6,000 3,894 3,965 4,470 4,400
3,278 3,008 3,249 3,750 3,615
3,100
4,000 2,300 2,645 2,469 2,873
760 1,274 1,692
2,000 330 350 456 625 578

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Production Exports Investment

) Auto Component production in India in 2007 – 08 was


USD 18 billion whereas the export was USD 3.6 billion
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Engine parts forms 31% of total Indian Auto
Component Market in Value terms

31%
19% In Value Terms

7% 12%
9%
10% 12%
Engine parts Drive transmission & steering parts
Body & chassis Suspension & braking parts
Equipment Electrical parts
Others

) In value terms, engine and drive transmission & steering parts form
half of the total market for auto components

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Motor Vehicle and Engine parts formed major auto
component import basked from ASEAN countries in 2004 - 05

Auto component import


Total Import – 2004-05 (US $ Million) Growth Rate (2001-05)
(OEM + Replacement)
Imports Imports from Share of Imports from Imports from
All All
Components detail from China ASEAN China & China ASEAN
Imports Imports
ASEAN
Parts and accessory of motor
543.38 3.98 61.16 12% 28% 28% 58%
vehicles
Engine parts 203.19 8.99 3.09 6% 15% 113% 24%
Electrical parts and accessories 29.80 0.68 0.1 3% 26% 63% -50%
Bumpers and parts 23.09 0.23 1.59 8% 69% 74% 288%
Injection pumps, oil pumps,
22.67 0.73 0.01 3% 39% 111% -29%
water pumps
Drive axles with differential 18.63 0.01 0.87 5% 50% -
Lighting equipment 17.46 1.8 2.01 22% 24% 14% 107%
Other Brakes/Servo brakes 17.20 0.9 0.23 7% 46% 63% -17%
Starter motors 11.16 0.3 1.44 16% 33% 166% 5%
Clutches 9.17 0.2 0.74 10% 25% 26% 147%
Wheels 7.86 0.75 0.29 13% 80% 127% 14%
Steering wheels and columns 7.06 0.01 0.45 7% 45% 21% 208%
Rear view mirror 4.23 0.74 0.6 32% 37% 104% 97%
Laminated safety glass 1.84 0.63 0.29 50% 87% 281% 313%
Total 916.7 20.0 72.9 30% 55% 49%

Source: ACMA (Automotive Component Manufacturers Association, DGFT (Directorate General of Foreign Trade)

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Auto Components in India generally pass from
2 – 3 nodes before reaching the end consumers

) Imports are happening largely because of “pull” factor whereby OEMs and importers
reaching out for cost effective procurement for desired quality products

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Net Margin for the genuine auto components
ranges from 8 – 10% for the retailers

Gross Margins Net Margins

Ranges between 12 – Ranges between 4 – 6%


Distribution
15% based on type of part based on type of part and type
Margin
and type of manufacturer of manufacturer

Ranges between 15 – Ranges between 8 – 10%


Retail
20% based on type of part based on type of part and type
Margin
and type of manufacturer of manufacturer

) For auto component distributors, the net margins vary between


4 – 6%

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Customs duty on imported auto components
currently vary from 5% to 10%

) However, in certain cases CVD (Countervailing Duty) and Special Additional Duty are levied

that takes the duty cover 30% to 35% of the component landing cost

) 100 per cent FDI inflow under automatic approval for foreign equity investment – both

automobile and auto component

) Technology import on royalty payment of 5% without any duration limit and lump sum

payment of USD 2 million allowed under automatic route


) Imports of automotive components is free from licensing and approvals

Initiatives taken by Indian Government

) Auto component duty reduction to 5 - 7.5 % from the earlier 10 %


) Setting up of the National Automotive Testing and R&D Infrastructure Project (NATRIP)
at a total cost of € 290.85 million for enabling global standards of vehicular safety, emission and
performance standards
) Finalization of the Automotive Mission Plan (AMP) 2006-2016 for making India a preferred
destination for design and manufacture of automobile and automotive components

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Quality & Price parameters play key role in purchasing
auto components in the replacement market

Key Purchase Criteria (Replacement Market)


Individual Customer Fleet Customer
1 = Least Important 5 = Most Important
Quality 4.5 Quality 4.4

Price 3.2 Price 3.4

Availability 2.4 Availability 2

Brand 3.1 Brand 3.4

Reliability 2.8 Reliability 2.7

0 1 2 3 4 5 0 1 2 3 4 5

Source of Purchase (Replacement Parts)


Source: ACMA

Engine Parts 42% 47% 11%


Electrical Parts 33% 51% 16%
Transmission Parts 38% 41% 21%
Suspension / Braking Parts 34% 51% 15%
Equipment Parts 35% 52% 13%

0% 20% 40% 60% 80% 100%

OEM Branded Others

) Customers prefer to purchase replacement parts largely either from Branded shops
or from OEMs / authorized service stations

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3.2 Conclusions and
Recommendations
Market segments for High grade plastics and Parts for evolving
technology aggregate would be attractive for Thai investors

Attractiveness Matrix for Thai Investors

Low High

Relative Degree of Technical Expertise

Ability in cost effective supply


High - Rubber Intensive parts High grade plastic, IC
e.g. tyres, Accessories based electronic parts /
- Skill intensive parts assemblies

Low Labour Intensive parts


, Parts for evolving
- casting, forging etc technology aggregates

“Thai auto component industry can supply tyres to Indian OEMs at cost effective
price.”
- Sourcing Manager, one of leading passenger car manufacturers
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Thai Investors should initially focus on entering plastics, silicon
intensive electronics parts, rubber intensive parts auto components

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Phase wise entry strategy for attractive auto
component segments

Phase I – Supply Phase II – Bring Phase III – Target


from plants located manufacturing servicing
in Thailand or other closer to replacement
countries marketplace market

• Form vendor • Set up assembly unit in • Focus on replacement


relationship with Indian India market for core
OEMs • Assembly unit to be set components once the
• Export parts from up at one of the auto products is established
Thailand / other countries
clusters, nearer to OEMs among OEMs
• Set up warehouse at
• Consolidate business • To be targeted after
port of entry for efficient
with old OEMs and establishing credibility
distribution management
• Target replacement target new OEMs and among OEMs
market for auto Tier – 1 suppliers • Acceptance by OEMs
accessories like alloy • Use raw material initially provide
wheels, music systems, procured from India or necessary push to these
car perfumes, from Thailand / other components in
decorative stickers etc countries replacement market

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Thank You
Annexure
Major OEM players in India
Passenger Cars Commercial Vehicles Two-Wheelers Three-Wheelers
Maruti Suzuki Ashok Leyland Hero Honda Bajaj Auto
Hyundai Tata Motors Bajaj Auto Piaggio
Tata Motors Eicher Motors TVS Motors Mahindra & Mahindra
Honda Swaraj Mazda Royal Enfield Motors TVS Motors
Mahindra & Mahindra Volvo Kinetic Motors Tata Motors
Toyota MAN-Force Suzuki Motors Force Motors
Fiat Yamaha Motors

Hindustan Motors Honda

General Motors LML India

Ford
Volkswagen
Renault
Mercedes Benz
Skoda
BMW
Volvo

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Auto Components Sub-segments and Key Players

Sub-segments Auto Component Manufacturers


Tata Autocomp Systems Ltd, Pune
Plastics, Silicon intensive and Denso India
electronics parts Motherson Sumi, Delhi NCR
Macro Precision Components, Bangaluru

Appollo Tyres, Delhi NCR


Ceat Tyres, Mumbai
Rubber intensive parts and accessories MRF Tyres, Chennai
Sundaram Clayton Ltd, Chennai

Lucas TVS, Chennai


Clutch Auto
Munjal Showa, Delhi NCR
Parts for evolving technology
Sona Koyo, Delhi NCR
aggregates
Rane TRW Steering Systems Limited
Amtek Auto
Lucas TVS, Chennai

Delphi TVS, Chennai


Bosch India, Bangaluru
Skill intensive engine parts
Ucal Fuel Systems Ltd
Precision Sintered Products, Gujarat

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Auto Components Sub-segments and Key Players

Sub-segments Auto Component Manufacturers


Bharat Forge, Pune
Labour intensive - casting, forging parts Automotive axles, Mysore
Unitech Texmech Pvt. Ltd., Pune
Progressive Gears Industries (P) Ltd, Delhi

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Auto Components Sub-segments and Key Players

Product Segment Key Sub-Segments Major Players


Gears & Drive Rico Auto Inds
Clutches Automotive Axles
Transmission and Steering Axles Wheels India Ltd.
Others Sona Koyo Steer.
GKN Driveline (India)
Starter Motors, Generator, Denso
Distributor, Spark Plugs, Motherson Sumi
Ignition Coil, Flywheel MICO
Electrical Parts
Magnet, Voltage Regulator, Minda Industries
Electrical Ignition India Nippon
Lucas TVS
Escorts
India Pistons
Goetze (India)
Pistons
India Pistons
Piston Rings
Rane Engine Valves
Engine Parts Engine Valves
Shriram Pistons & Rings
Carburettors
Spaco Carburettors
Fuel Delivery System
Ucal Fuel
Lucas TVS
MICO Germany

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Major Players for Auto Components – Key sub-segment
wise (contd…)

Product Segment Key Sub-Segments Major Players


Lumax, Autolite, Phoenix
Headlight
Lamps
Premiere Instruments &
Equipment Dashboard
Controls
Jay Bharat Maruti, Omax
Sheet Metal
Auto, JBM tools
Automotive Axles
Brakes India
Kalyani Brakes
Brake System
Allied Nippon
Suspension and Braking Brake Linings
Rane Brake Lining
Shock Absorbers
Sundaram Brake
Gabriel India
Munjal Showa
Fan Belts Rico Auto
Others
Sheet Metal Rico Auto

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